TMI Blog2020 (1) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds of crime, but under those circumstances, there must be material or prima facie evidence on record before passing the provisional attachment orders. This order is being passed in relation to mortgage properties in favour of banks which are not purchased from proceeds of crime. The same were purchased and mortgage with the banks prior to the of crime period. ED is not precluded to attach other private properties and all other assets of the alleged accused. It is clarified that this order shall have no bearing in any proceedings initiated against the alleged accused including extradition proceedings pending or proposed to be initiated in any part of the world. Those are to be considered as per law and without any influence of this order which is being passed in the interest of public as bank money is a public money. Most of the banks are public sector banks. Their valid and legal recovery can not be blocked for years without valid reasons. Therefore, the issue in hand is being decided only for limited purposes The impugned order is set-aside with regard to the attachment of properties which are mortgaged with the appellant or its assignor. The appeal is allowed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). (Sterling Biotech, Sterling SEZ, PMT Machines and Unique Proteins are hereinafter collectively referred to as Sterling Entities ) 5. Appellant is an asset reconstruction company, registered with the Reserve Bank of India (RBI), under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act ), and is inter alia, engaged in the business of securitisation/reconstruction/resolution/acquisition of non-performing financial assets from banks / financial institutions. 6. It is the case of the appellant that in its ordinary course of business, between March, 2014 and September, 2016 acquired the outstanding loans advanced to the said Sterling Entities which had become NPA under the provisions of the SARFAESI Act, along with underlying securities including a charge over JMFARC Mortgaged Properties. The particulars of the outstanding loans acquired by appellant is set out in the table hereinbelow: Name of the Borrower Unique Proteins Sterling Biotech PMT Machines Sterling SEZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities of Sandesara Group. Thereafter, the loan account of Unique Proteins was declared as NPA by SICOM Limited on 30th November 2012, due to default in repayment of the said loan amount. Appellant in its ordinary course of business, acquired this outstanding loan from SICOM Limited with all rights, title and interest, along with the underlying security interests, pledges and/or guarantees in respect of the said loan vide an Assignment Agreement dated 22nd March 2014 under the provisions of SARFAESI Act, 2002. Properties attached under the PAO and mentioned at Sl. Nos. 4, 18 and 39 in the PAO and in the Complaint are properties on which this Defendant holds a security interest, pursuant to the Assignment Agreement dated 22nd March 2014 executed between SICOM Limited and Appellant. 10. Post assignment of debt in favour of appellant, certain group entities of Sandesara Group, i.e., Sterling International Enterprises Limited, PMT Engineering Limited, Intense Consultancy Services Private Limited, Yogi Consultancy Services Private Limited, Nishant Consultancy Services Private Limited, Saika Consultancy Services Private Limited, Triangle Investment Company Limited mortgaged cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan account of PMT Machines was declared as NPA by Oriental Bank of Commerce in December 2012, due to default in repayment of the said loan amount. Appellant in pursuance of its aforementioned business activities, acquired this outstanding loan from Oriental Bank of Commerce with all rights, title and interest, along with the underlying security interests, pledges and/or guarantees in respect of the said loan vide an Assignment Agreement dated 27th June 2014 under the provisions of SARFAESI Act. Property attached under the PAO and mentioned at Sl. No. 1 in the Complaint is the property on which this Defendant acquired a security interest over pursuant to the Assignment Agreement dated 27th June 2014 executed between Oriental Bank of Commerce and appellant. The petition for initiating Corporate Insolvency Resolution Process ( CIRP ) against PMT Machines has been admitted by the NCLT Mumbai vide order dated 22nd October 2018 under the Insolvency and Bankruptcy Code, 2016 ( the Code ). Hence, in view of the CIRP being initiated, moratorium under Section 14 of the Code has been imposed and insolvency resolution professionals have been appointed. A copy of the said order dated 22nd Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he FIRs referred above, name of assignor of loan JMFARC or any of its personnel has been mentioned. Further, the said Second FIR itself shows that there was a criminal conspiracy to cheat the public sector banks, some of whom have assigned the loans to appellant and hence having stepped into the shoes of the victim banks, the appellant is also a victim. Further, without prejudice to above, Complainant in Para 5 of its reply to the reply filed by appellant, has itself candidly admitted that there is no impropriety and illegalities alleged against JM Financial Asset Reconstruction Company Limited i.e. appellant. Further, many of the properties mentioned in PAO which are mortgaged/charged in favour of appellant, are also charged/mortgaged in favour of other Banks/Financial Institutions, who have not been made a party to these proceedings. 16. On 11th April 2018, the Enforcement Directorate ( ED ) issued a letter of the even date to this Defendant under Sections 50(2) and 50(3) of the PMLA calling upon this Defendant to furnish information regarding the loans of the said Sterling Entities which had been acquired by this Defendant. In response thereto, appellant collated all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is also noteworthy to mention that JMFARC Mortgaged Properties were duly charged in favour of respective banks/financial institutions for a fair consideration, and the same was under was bonafide loan transaction in the ordinary course of business of banking/lending. There was an authentic disbursement of loans which, amongst other securities, was secured by way of a charge over JMFARC Mortgaged Properties. 18. The details of the JMFARC Mortgaged Properties, along with the present status of the said properties attached under the POA are more particularly set out in a Schedule of JMFARC Properties, which is annexed as Schedule - 1. List of Dates: Sl. No. DATE PARTICULARS 1. 15th March 2005 Oriental Bank of Commerce, under consortium lending sanctioned various credit facilities to PMT Machines, which, amongst other securities, were also secured by way of a charge over assets of PMT Machines, as recorded under Agreement of Hypothecation of Assets of even date. 2. 20th March 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dena Bank. 11. 4th July 2012 Charge was created in favour of SICOM Limited vide Memorandum of Entry of even date, as a security for loans granted to Unique Proteins. 12. 30th September 2012 Loan account of Sterling Biotech was declared as NPA by Federal Bank. 13. 30th November 2012 Loan account of Unique Proteins was declared as NPA by SICOM Limited. 14. December 2012 Loan account of PMT Machines was declared as NPA by Oriental Bank of Commerce. 15. 22nd March 2014 Defendant No. 85 acquired the outstanding loan of Unique Proteins from SICOM Limited including all its rights, title and interest vide a registered Assignment Agreement dated 22nd March 2014 and hence obtained a valid and subsisting secured charge over the JMFARC Mortgaged Properties at Serial Nos. 4, 18 and 39 in the PAO and in the Complaint. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sterling Entities. 23. 29th May 2018 The PAO was issued which inter alia attached the JMFARC Mortgaged Properties under the provisions of the PMLA. 24. 11th June 2018 Letter sent to the ED by this Defendant providing details pertaining to the loan of PMT Machines. CIRP under Code initiated vide order dated 11th June 2018 by Hon'ble NCLT Mumbai against Sterling Biotech. 25. 14th June 2018 Corrigendum to PAO was issued which inter alia attached the JMFARC Mortgaged Properties under the provisions of the PMLA. 26. 28th June 2018 Original Complaint O.C No. 989/2018 was filed by the Complainant. 27. 4th July 2018 The SCN was issued by the Ld. AA against Defendant No 85 as per the PMLA. 28. 16th July 2018 CIRP under the Code initiated vide order dated 16th July ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by persons belonging to the Sandersara Group and therefore, committed an irreversible illegality and as such, the JMFARC Mortgaged Properties are liable to be released from attachment. 22. It is alleged on behalf of appellant that, if acquired, the outstanding loans of the Sterling entities in bona fide belief of it being NPA accounts, with no prior knowledge of any fraud / criminal activity committed by these Defendants on the Bank. The POA has totally disregarded the fact that such an order will frustrate the rightful claims of the present Defendant, which is an asset reconstruction company, and which has taken over the financial assets of the Sterling entities, together with underlying security interests and all rights, title and interest thereon in accordance with all applicable laws, and with bona fide intention, and after paying a huge consideration to the assignor Banks/Financial Institutions. It is submitted that at the time of commission of the alleged offences, Defendant No.85 was not a party or a related party to any of the transactions and loans that were acquired by the said Sterling Entities or other entities under the Sandesara Group. Appellant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in no illegality and impropriety alleged against this Defendant. This should be strictly construed in favour of this Defendant, and be deemed as an admission on part of the Complainant. The relevant para is reproduced hereinbelow: JM Financial Asset Reconstruction Company Limited has been made Defendant as per the instructions received from the Ld. Adjudicating Authority which reads Properties mortgaged to any party/bank/financial institutions etc., such party should invariably be made Defendant in the Original Complaint . Therefore, the Complainant with bonafide intention made JM Financial Asset Reconstruction Company Limited as a defendant in the PAO and Original Complaint and also there is no impropriety and illegalities were alleged against JM Financial Asset Reconstruction Company Limited by the Complainant. 27. The present appellant is a victim of the fraud played by Sterling Entities and their Directors, if at all. The appellant was not a party or even a related party to any of the transactions and loans that were acquired by the Sterling Entities, and only came to be associated with their account and assets through the respective Assignment Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and illegalities were alleged against the Appellant herein i.e. JM Financial Asset Reconstruction Company Limited. 33. The Appellant has nothing to do and has no connection with the allegation of crime committed by the defendants/respondent no. 2 Bharat Bomb and other persons concerned involved for the offences of money-laundering. The Appellant is not holding any funds of any of the defendant/respondent. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to punish the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (v) read with Section 3 of the Act. The appellant is not charge-sheeted nor any prosecution complaint has been filed against the appellant. The appellant have also no objection if the borrowers properties which were acquired from proceed of crime be dealt by the respondent in any manner. 34. There is no nexus whatsoever, between the alleged crime and the appellant who is mortgagee of the property and is a victim of the fraud and is innocent party. The definition of proceed of crime as per Section (u) of the Act co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made available for purposes of PMLA. 36. The Hon'ble High Court of Delhi has held that the interest of a third party in the property of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property U/s 8 of the Act. The Hon'ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property as exceeds the claim of the third party, if any. 37. Pertaining to jurisdiction of this appellate tribunal, it is clear that in terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Hon'ble Tribunal U/s 26 of the Act and then before the Hon'ble High Court U/s 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets and if any balance is left out, then the balance amount shall go to the ED on the premise that the said properties will continue to remain attached with the ED under PMLA on the ground of value thereof. (iii) Prior mortgage charge of secured creditors must be registered qua the mortgaged immovable properties only then Bank's statutory rights under Section 13 of the SARFAESI, Act are protected and protected. (iv) SARFAESI, action initiated prior to the commission of offence of Money Laundering under PMLA would remain valid and interest of secured creditors will remain protected. 41. If paras 167 to 169 of Hon'ble High Court's Judgment are read co-jointly with para-163 and 165, it is clear from the same that if the attachment has attained finality or if order of confiscation has been passed, the claim and legitimate interest will have to be inquired by the Special Court. The said findings are correct if the situation as in the present case appears are the same. In the present case, attachment has not attained finality or any confiscation has been passed or any trial has commenced under the Section-4 of PMLA against the appellants. In fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likely to frustrate ; and other formal requirements. [Paragraph 61 at Page No. 32 - 33 of the Judgment] (b) For tainted properties, i.e., properties for which reasons to believe exists that such properties were acquired directly from the proceeds of crime, the Enforcement Directorate is bound to justify that such third party interest was created with a view to frustrate/to defeat the law against money laundering. In this regard, it is pertinent to note that out of the 17 JMFARC Mortgaged Properties, for 16 properties no reasons to believe have been provided at all and for the one other property (at Sl. No. 18 of the PAO), the Respondent has failed to justify how third party interest in the said property was created with a view to defeat the provisions of PMLA. [Paragraph 161 at Page No. 93 of the Judgment.] (c) Mortgaged Properties for which no reasons to believe have been provided, have been attached since there are equivalent in value to tainted assets, the Complaint and the PAO were necessarily required to state that the said tainted assets cannot be traced. However, the Respondent has not even complied with this aspect as well. In any event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the existing Reserve Bank of India guidelines. All the assignment agreements executed between assignor banks and/or financial institutions and Appellant contain an affirmative covenant that the accounts assigned have not been classified as fraud accounts and that fraudulent accounts do not form part of the assignment agreements. 48. The impugned order confirming the provisional attachment order is passed without application of mind and without understanding the law, it is liable to be quashed with regards to mortgage properties. 49. I do not agree with the submission of counsel appearing on behalf of ED that the banks may not be allowed to dispose of the mortgage properties owned by Muhul Choksi and Nirav Modi and we should wait for trial to be faced by these offenders and it would also have some bearing in their extradition proceedings. The main reasons for disagreeing his arguments are that the mortgage properties were acquired much prior period from the date of offense. The banks are innocent and victims. The banks are not charge-sheeted. They are the secured creditors. Banks moneys have been looted by these cheaters. Public Sectors banks' money i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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